How to Choose the Best Debt Management Plan for You
Choosing the best debt management program can free you from the nightmare of unpaid bills and help you return your finances to good health. The best debt management program is offered by nonprofit credit counseling agencies that present a structured path out of debt with guidance from certified credit counselors.
The typical counseling session lasts 25-30 minutes and will help you establish a budget, learn to manage money carefully and come up with an affordable monthly payment to eliminate credit card debt in 3-5 years.
However, a poorly designed program – especially one you can’t afford to finish or makes unrealistic promises – can make your situation worse. There are scam artists who will take advantage of people in a vulnerable financial position so research a company before choosing.
Given the importance of this decision, it pays to understand what debt management programs can do for you and how they do it.
Here are some questions you will need answered:
- Is your agency accredited and does it belong to a professional organization?
- How are your credit counselors certified?
- How will a debt management program help me pay off my debts?
- How successful has the program been with other clients?
- What sort of financial education will I receive while in the program?
- And what is the cost for enrolling in the program?
Reducing debt can solve a lot of life’s problems. The right debt management program should be your lifeline to getting your financial house in order.
Things to Consider before Choosing a Debt Management Agency
Before enrolling in a debt management program, understand the scope of your financial problems. To make that assessment, speak with a credit counselor from a nonprofit credit counseling agency. This should be a mandatory first step to enter any sort of debt-relief program.
“A company’s status as a nonprofit credit counseling agency is important because you are much more likely to receive ongoing counseling throughout the life of the program,” said Bruce McClary, vice president of marketing at the National Foundation for Credit Counseling (NFCC). “You should receive regular follow ups at certain milestones and full access to support financial health and positive behavior.”
The good news is that the first meeting is free. Every certified nonprofit credit counseling agency will look at your financial situation and give advice on the best solution to your problem at no charge.
Some things to look for include:
- Search for a certified counselor through a professional organization. The NFCC and the Association of Independent Consumer Credit Counselors have websites that will help you find a nonprofit credit counseling agency. Their members are required to adhere to best-practice standards.
- Choose a counselor that offers services in a convenient way. Many credit counseling agencies conduct meetings by phone or over the internet. Not every consumer can schedule an appointment during business hours. Ask if the counselor is available to speak by phone or meet after standard work hours.
- Do your own research. Creditors might be able to refer you to a nonprofit counseling agency. You can also check online sources for news stories about credit counselors.
- This is serious stuff. If you enter a debt repayment plan, you’re expected to stick with it and that usually means 3-5 years. Credit counseling agencies work with card companies to reduce the interest you pay on your debt. If you don’t follow through with the payments, those interest-rate concessions can be cancelled.
- Could be an impact on your credit score. Just speaking with a credit counseling agency has no impact on your credit score, but if you enroll in a debt management program, you may see a temporary drop in our score followed by consistent score gains. A recent study of InCharge clients showed an early program decline followed by credit score gains that lasted until the end of the program.
Sometimes speaking with a credit counselor is all you need to develop a financial plan and you will be able to manage your own repayment plan. When you go to a counseling session, ask questions about building a workable household budget. Also ask about debt re-aging, a technique that reports past-due debts as current, avoiding credit problems that result from delinquent payments.
Creditors will sometimes work with you on this if it means they will be repaid. Creditors might be willing to reduce interest rates and late fees and change your repayment schedule.
If you need help solving debt problems, the counselor might recommend a debt management program which involves an agency contacting your creditors, consolidating and perhaps reducing your payments and creating a plan that will help you pay off your debts within 3-5 years.
Keep in mind that creditors ask you to stop using credit cards while in the program.
Nonprofit credit counselors and managers are trained and have experience in assisting people with debt. At the initial counseling session, ask about their credentials. You should also do your own research before you pick a counselor or debt manager. It’s an important choice that could have huge consequences for your financial well-being.
Ask about Debt Management Program Fees
Though the initial consultation is free, there is a charge if you enroll in a debt management program. DMP fees vary from one agency to another and so do billing arrangements. You should know what you would be charged before you enter in an agreement. Some agencies charge big enrollment fees, set up fees and monthly fees. Get a very specific rundown of how fees are assessed and how you will pay them should you use the agency.
Several things to remember:
- Most agencies are subject to state law and are limited in what they can charge. Ask the counselor about any state laws that pertain to the services it offers.
- Most states license debt management agencies. Ask if the agency you’re considering is licensed. If your state requires a license and the agency doesn’t have one, move on.
- If you can’t afford the fees, talk with the counselor. Agencies should waive fees if you show that you can’t afford them.
- Make sure the fees are reasonable. You will likely also pay an enrollment fee, which averages less than $50.
- Ask about financial education. The agency should be able to provide instructional material and ongoing counseling at no charge.
- Expect the agency to review all your financial statements, creditor names, account interest rates and account status information before giving you a quote on what it will charge you, if anything.
Read Debt Management Program Reviews
A company you are considering working with should have a strong profile with review sites like Trustpilot and the Better Business Bureau profile. Search the company name on the Trustpilot or BBB website and review the comments and complaint history. You want to see that the company you’re working with has a low number of complaints and has worked to resolve them. You can review InCharge Debt Solution’s BBB profile here.
Trustpilot and the Better Business Bureau give users a chance to look at the good and bad,” McClary said. “Check to see if there is a recurring theme to the reviews. Look for signs that they were written by real human beings and not robots.”
You also want to make sure that the debt management company you work with is accredited by the Council on Accreditation. CoA accredits organizations that adhere to the highest standards in counseling for the benefit of individuals, families and communities. The CoA mark represents a high level of accountability, efficiency, data protection and employee qualifications. When you work with a credit counselor from a CoA-accredited organization, you can be assured that you are receiving the highest quality of service in the industry.
Debt management plans typically involve the consolidation of payments into a single monthly payment to the agency, which then repays your creditors based on an agreement it has reached. You should ask how your payments will be dispersed to your creditors and ask for documentation, either through an agency website or a monthly statement. Remember, these are your debts and you are responsible for their payment, even if the agency you retained is handling the transfers.
Review Your Action Plan & Agreement
Don’t sign a debt management program if you don’t understand the terms of your repayment plan or agreement. Call a counselor and ask questions about enrolling in a debt management program. Make sure you understand your monthly payment, fees charged by the agency, penalties for dropping out of the program and how many years until you will be debt free. Review interest savings estimates from different agencies.
A debt management program is a long-term relationship that should be entered into with a thorough understanding what you will have to pay your creditors and the agency. Don’t enter a debt management agreement if you foresee problems that might result in default. Failing to adhere to the agreement could lead to bankruptcy.